Question 1

-Refer to Figure 15-4.If the economy is currently at point X,an increase in output will

Accepted Answer

A)  move the economy to point A 
B)  move the economy to point B 
C)  shift the aggregate supply curve up to curve AS2 
D)  shift the aggregate supply curve down to curve AS3 
E)  have no effect on the price level and there will be no movement away from point X. 
A)  move the economy to point A 
B)  move the economy to point B 
C)  shift the aggregate supply curve up to curve AS2 
D)  shift the aggregate supply curve down to curve AS3 
E)  have no effect on the price level and there will be no movement away from point X. B

Question 2

In the short run,an increase in the money supply will

Accepted Answer

A)  decrease the interest rate,increase real GDP,and decrease the price level 
B)  increase the interest rate,decrease real GDP,and decrease the price level 
C)  result in decreases in the interest rate and real GDP,which are then followed by increases in the interest rate which offset some of the change in real GDP 
D)  result in decreases in the interest rate and increases in real GDP,which are then followed by increases in the interest rate which offset some of the increase in real GDP 
E)  result in an increase in the interest rate and a decrease in real GDP,which are then followed by decreases in the interest rate which offset some of the decrease in real GDP 
A)  decrease the interest rate,increase real GDP,and decrease the price level 
B)  increase the interest rate,decrease real GDP,and decrease the price level 
C)  result in decreases in the interest rate and real GDP,which are then followed by increases in the interest rate which offset some of the change in real GDP 
D)  result in decreases in the interest rate and increases in real GDP,which are then followed by increases in the interest rate which offset some of the increase in real GDP 
E)  result in an increase in the interest rate and a decrease in real GDP,which are then followed by decreases in the interest rate which offset some of the decrease in real GDP D

Question 3

A negative demand shock would lead to a decline in both the price level and output in the short run.

Accepted Answer

A) True 
 B)False  True

Question 4

Why does a change in GDP affect unit costs and the price level?

Accepted Answer

A)  as GDP increases,productivity increases. 
B)  as GDP increases the price of non-labor inputs increases and the nominal wage tends to increase. 
C)  as GDP decreases,there are efficient gains 
D)  as GDP increases,economies of scale allow for lower unit costs. 
E)  as GDP increases the price of non-labor inputs decreases and the nominal wage tends to increase. 
A)  as GDP increases,productivity increases. 
B)  as GDP increases the price of non-labor inputs increases and the nominal wage tends to increase. 
C)  as GDP decreases,there are efficient gains 
D)  as GDP increases,economies of scale allow for lower unit costs. 
E)  as GDP increases the price of non-labor inputs decreases and the nominal wage tends to increase.

Question 5

The self-correcting mechanism is the reason that the economy will behave as the classical model predicts in the long run.

Accepted Answer

A) True 
 B)False

Question 6

-Refer to Figure 15-1.Assume the economy is in equilibrium at $7 trillion.If the changes in all three graphs were caused by the same event,what was that event?

Accepted Answer

A)  An increase in nominal income 
B)  An increase in the price level 
C)  An increase in the interest rate 
D)  An increase in taxes 
E)  An increase in real income. 
A)  An increase in nominal income 
B)  An increase in the price level 
C)  An increase in the interest rate 
D)  An increase in taxes 
E)  An increase in real income.

Question 7

If the cost per unit of output for a particular product is $10 and the product sells for $20,what is the percentage markup over cost per unit?

Accepted Answer

A)  200 percent 
B)  10 percent 
C)  100 percent 
D)  20 percent 
E)  50 percent. 
A)  200 percent 
B)  10 percent 
C)  100 percent 
D)  20 percent 
E)  50 percent.

Question 8

The AD-AS model implies that,in the long run,

Accepted Answer

A)  the economy adjusts very quickly to demand shocks 
B)  changes in government spending have no effect on GDP 
C)  the price level never changes 
D)  a mixture of fiscal and monetary policy is necessary to achieve full employment 
E)  the Fed controls output 
A)  the economy adjusts very quickly to demand shocks 
B)  changes in government spending have no effect on GDP 
C)  the price level never changes 
D)  a mixture of fiscal and monetary policy is necessary to achieve full employment 
E)  the Fed controls output

Question 9

Since most firms use a stable markup,prices will remain stable over long periods of time.

Accepted Answer

A) True 
 B)False

Question 10

In the short run,a negative supply shock

Accepted Answer

A)  causes firms' unit costs to decrease 
B)  shifts the AS curve to the right 
C)  causes output to decrease and the price level to increase 
D)  shifts the AD curve to the left 
E)  causes both output and the price level to decrease 
A)  causes firms' unit costs to decrease 
B)  shifts the AS curve to the right 
C)  causes output to decrease and the price level to increase 
D)  shifts the AD curve to the left 
E)  causes both output and the price level to decrease

Question 11

By what mechanism does the economy always return to full employment after a demand shock in the short run?

Accepted Answer

A)  Wages automatically adjust themselves. 
B)  The interest rate automatically adjusts itself. 
C)  Prices automatically adjust themselves. 
D)  Taxes automatically adjust themselves. 
E)  Rents automatically adjust themselves. 
A)  Wages automatically adjust themselves. 
B)  The interest rate automatically adjusts itself. 
C)  Prices automatically adjust themselves. 
D)  Taxes automatically adjust themselves. 
E)  Rents automatically adjust themselves.

Question 12

If Congress voted to eliminate the minimum wage,which of the following would most likely occur?

Accepted Answer

A)  Decrease in unit costs and an upward shift of the aggregate supply curve 
B)  Decrease in unit costs and an upward movement along the aggregate supply curve 
C)  Decrease in unit costs and a downward shift of the aggregate supply curve 
D)  Increase in unit costs and an upward shift of the aggregate supply curve 
E)  Increase in unit costs and an upward movement along the aggregate supply curve. 
A)  Decrease in unit costs and an upward shift of the aggregate supply curve 
B)  Decrease in unit costs and an upward movement along the aggregate supply curve 
C)  Decrease in unit costs and a downward shift of the aggregate supply curve 
D)  Increase in unit costs and an upward shift of the aggregate supply curve 
E)  Increase in unit costs and an upward movement along the aggregate supply curve.

Question 13

In the long run,unusually high unemployment

Accepted Answer

A)  indicates that an economy is operating above potential GDP 
B)  forces the wage rate down 
C)  eventually causes the aggregate supply curve to shift upward 
D)  pushes the price level upward 
E)  causes the aggregate demand curve to shift rightward 
A)  indicates that an economy is operating above potential GDP 
B)  forces the wage rate down 
C)  eventually causes the aggregate supply curve to shift upward 
D)  pushes the price level upward 
E)  causes the aggregate demand curve to shift rightward

Question 14

After a positive demand shock,what are the expected long-run adjustments?

Accepted Answer

A)  Wages fall,price level falls,and output falls back to potential. 
B)  Wages rise,price level rises,and output falls back to potential. 
C)  Wages fall,price level rises,and output rises back to potential. 
D)  Wages rise,price level falls,and output falls back to potential. 
E)  Wages rise,price level rises,and output rises. 
A)  Wages fall,price level falls,and output falls back to potential. 
B)  Wages rise,price level rises,and output falls back to potential. 
C)  Wages fall,price level rises,and output rises back to potential. 
D)  Wages rise,price level falls,and output falls back to potential. 
E)  Wages rise,price level rises,and output rises.

Question 15

In the long-run AS-AD model,

Accepted Answer

A)  the position of the AD curve determines output 
B)  the self-correcting mechanism of the economy is irrelevant 
C)  the AS curve shifts leftward whenever the economy is growing 
D)  the position of the AD curve determines the price level 
E)  output fluctuates a great deal 
A)  the position of the AD curve determines output 
B)  the self-correcting mechanism of the economy is irrelevant 
C)  the AS curve shifts leftward whenever the economy is growing 
D)  the position of the AD curve determines the price level 
E)  output fluctuates a great deal

Question 16

If output exceeds its full-employment level,the wage rate will eventually fall,causing a drop in the price level and a drop in real GDP until full employment is restored.

Accepted Answer

A) True 
 B)False

Question 17

-Refer to Figure 15-5.Assuming that the economy starts at point X,a decrease in world oil prices would

Accepted Answer

A)  move the economy to point A 
B)  move the economy to point B 
C)  shift the aggregate supply curve upward to curve E 
D)  shift the aggregate supply curve downward to curve F 
E)  have no impact since the model only shows the relationship between the overall price level and real GDP. 
A)  move the economy to point A 
B)  move the economy to point B 
C)  shift the aggregate supply curve upward to curve E 
D)  shift the aggregate supply curve downward to curve F 
E)  have no impact since the model only shows the relationship between the overall price level and real GDP.

Question 18

The aggregate demand curve tells us the equilibrium level of real GDP corresponding to any price level.

Accepted Answer

A) True 
 B)False

Question 19

A negative supply shock causes stagflation in the short run.

Accepted Answer

A) True 
 B)False

Question 20

The 1990-91 recession was caused by a Federal Reserve policy change designed to minimize the adverse economic effects of the Gulf War.

Accepted Answer

A) True 
 B)False

-Refer to Figure 15-4.If the economy is currently at point X,an increase in output will

In the short run,an increase in the money supply will

A negative demand shock would lead to a decline in both the price level and output in the short run.

Why does a change in GDP affect unit costs and the price level?

The self-correcting mechanism is the reason that the economy will behave as the classical model predicts in the long run.

-Refer to Figure 15-1.Assume the economy is in equilibrium at $7 trillion.If the changes in all three graphs were caused by the same event,what was that event?

If the cost per unit of output for a particular product is $10 and the product sells for $20,what is the percentage markup over cost per unit?

The AD-AS model implies that,in the long run,

Since most firms use a stable markup,prices will remain stable over long periods of time.

In the short run,a negative supply shock

By what mechanism does the economy always return to full employment after a demand shock in the short run?

If Congress voted to eliminate the minimum wage,which of the following would most likely occur?

In the long run,unusually high unemployment

After a positive demand shock,what are the expected long-run adjustments?

In the long-run AS-AD model,

If output exceeds its full-employment level,the wage rate will eventually fall,causing a drop in the price level and a drop in real GDP until full employment is restored.

-Refer to Figure 15-5.Assuming that the economy starts at point X,a decrease in world oil prices would

The aggregate demand curve tells us the equilibrium level of real GDP corresponding to any price level.

A negative supply shock causes stagflation in the short run.

The 1990-91 recession was caused by a Federal Reserve policy change designed to minimize the adverse economic effects of the Gulf War.

What is Economics?

Scarcity, Choice, and Economic Systems

Supply and Demand

Working With Supply and Demand

What Macroeconomics Tries to Explain

Production, Income, and Employment

The Price Level and Inflation

The Classical Long run Model

Economic Growth and Rising Living Standards

Economic Fluctuations

The Short-run Macro Model

Fiscal Policy

Money, Banks, and the Federal Reserve

The Money Market and Monetary Policy

Inflation and Monetary Policy

Exchange Rates and Macroeconomic Policy

Filters

Exam 15: Aggregate Demand and Aggregate Supply

-Refer to Figure 15-4.If the economy is currently at point X,an increase in output will

In the short run,an increase in the money supply will

A negative demand shock would lead to a decline in both the price level and output in the short run.

Why does a change in GDP affect unit costs and the price level?

The self-correcting mechanism is the reason that the economy will behave as the classical model predicts in the long run.

-Refer to Figure 15-1.Assume the economy is in equilibrium at $7 trillion.If the changes in all three graphs were caused by the same event,what was that event?

If the cost per unit of output for a particular product is $10 and the product sells for $20,what is the percentage markup over cost per unit?

The AD-AS model implies that,in the long run,

Since most firms use a stable markup,prices will remain stable over long periods of time.

In the short run,a negative supply shock

By what mechanism does the economy always return to full employment after a demand shock in the short run?

If Congress voted to eliminate the minimum wage,which of the following would most likely occur?

In the long run,unusually high unemployment

After a positive demand shock,what are the expected long-run adjustments?

In the long-run AS-AD model,

If output exceeds its full-employment level,the wage rate will eventually fall,causing a drop in the price level and a drop in real GDP until full employment is restored.

-Refer to Figure 15-5.Assuming that the economy starts at point X,a decrease in world oil prices would

The aggregate demand curve tells us the equilibrium level of real GDP corresponding to any price level.

A negative supply shock causes stagflation in the short run.

The 1990-91 recession was caused by a Federal Reserve policy change designed to minimize the adverse economic effects of the Gulf War.

What is Economics?

Scarcity, Choice, and Economic Systems

Supply and Demand

Working With Supply and Demand

What Macroeconomics Tries to Explain

Production, Income, and Employment

The Price Level and Inflation

The Classical Long run Model

Economic Growth and Rising Living Standards

Economic Fluctuations

The Short-run Macro Model

Fiscal Policy

Money, Banks, and the Federal Reserve

The Money Market and Monetary Policy

Inflation and Monetary Policy

Exchange Rates and Macroeconomic Policy

Filters